There’s a Business Case for Board Diversity

The banking industry is getting more scrutiny. That scrutiny can and should include a look at who is in charge.

The Greenlining Institute’s latest report on the diversity (or lack thereof) of bank boards focused on nine major institutions with a large presence in California — household names like Citi, Bank of America and Goldman Sachs.

Simply put, the people running most of these big banks don’t look much like America. Citi’s board, one third people of color, was the most diverse, but eight of nine boards were at least 80 percent white and 80 percent male. Five banks had no Latino representation at all, while four had no Asian Americans and two had no African Americans.

ADVERTISEMENT

Thanks for watching!

Although the information we were able to obtain on management was incomplete, it’s clear that upper management is also disproportionately white and male, with single digit percentages in important job categories at many institutions.

These are banks with a major presence in a state where 60 percent of the population is now people of color, and a nation where people of color are already over one third of the population, heading towards a majority.

We believe diversity is a positive value in and of itself, but there’s a business case to be made: A variety of expert reviews — from organizations like the Federal Reserve Bank of Boston and the Government Accountability Office — have found that diverse boards tend to be more effective and innovative. And projections for 2014 point to over $3 trillion in buying power for the combined African American, Asian American and Latino communities.

ADVERTISEMENT

Thanks for watching!

ADVERTISEMENT

Thanks for watching!

And these potential customers are far less likely to have bank accounts than whites. Native Americans, for example, are over four times more likely to be unbanked than whites, Latinos are nearly six times more likely, and African Americans are more than six times more likely to be without bank accounts of any kind. Several ethnic minorities are also far more likely to be underbanked, possessing a checking or savings account, but relying heavily on non-bank financial services.

The underbanked alone make up 21 percent of U.S. households. That’s a large pool of potential customers, and it’s bad for the communities involved, who often use services like check cashing stores that are both expensive and inadequately regulated.

To reach this untapped market requires having decision makers who understand those communities — their needs, circumstances, and especially the fears and concerns that have kept too many away from the banking system.

During the housing bubble, predatory lending disproportionately occurred in communities of color. Researchers from the Federal Reserve Bank of San Francisco found that California blacks and Latinos with FICO scores above 720 were far more likely than whites with comparable scores to receive high-cost, subprime loans. The researchers considered these racial discrepancies so dramatic that they wrote that “blacks and Hispanics in California had access to very different mortgage markets” than whites, with a “devastating” impact.

We don’t claim that diverse leadership at the top will solve every problem, but it absolutely can help build awareness of potentially discriminatory patterns, even when they’re unintended or unconscious, and help avoid them.

It’s time for bank boards and top management to look more like America — not just in terms of race and gender, important as those are, but also in background and experience. An executive who remembers growing up in a low income or marginalized community is more likely to understand those communities and do right by them. And ultimately that’s good for all of us.

Kenneth A. Macias is the chairman of the California Hispanic Chambers of Commerce. Preeti Vissa is the community reinvestment director of the Greenlining Institute.